Don Boudreaux is the master of the letter to the editor. It is my understanding (though I have never confirmed this with him) that this particular talent of his was cultivated by a personal challenge from John Stossel to Don when Don was the President of FEE. You will not impact public opinion, Stossel said, until you can explain economics is a few sentences of clear writing. Or something to that effect. A similar challenge was put to Walter Williams by Milton Friedman twenty or more years early --- as the story goes Milton told Walter you never know that you really have mastered economics until you can effectively explain economic concepts to the average person in less than 800 words. Williams took the challenge and became one of the most widely circulated op-ed writers in the US. Boudreaux took the challenge and has emerged as perhaps the most active letter to the editor writer in the US.

In today's letter --- to Newsweek --- in response to a column by Robert Samuelson, Don sums up the nature of democratic government and the dilemma it represents for sound economic policy.

29 August 2008

Editor, Newsweek

Dear Editor:

Robert
Samuelson is correct: regardless of which party wins the White House or
Congress, Uncle Sam is unlikely to get his fiscal affairs in order
("The Rise of Fantasy Politics," September 1).

In principle,
government's core responsibility is to prevent Jones from benefiting by
his imposing costs on Smith without Smith's consent. In practice,
government acts as Jones's agent in securing benefits for Jones by
imposing costs on Smith.

Government's modus operandi today is to
bestow goodies on politically powerful interest groups, and to pay for
these goodies by taxing politically unpopular groups (e.g., oil
companies) and politically impotent groups (most notably, future
taxpayers). The bottom line is that, through government, Jones imposes
costs on Smith without Smith's consent.

After listening this week to promise after promise to fix health, education and human welfare in general (which all relied on expanding the scope and scale of government) only to be followed by the same speaker claiming they will also balance the budget and make government more 'efficient' -- as was said last night you cannot expect to address 21st century challenges with a 20th century bureaucracy. Line by line will be examined candidate Obama promised and programs will be cut that are no longer relevant, and those that remain will work better and at a lower cost. How exactly that will be achieved remains a question of faith. I am sure candidate McCain and the speakers over the next few days will make similar promises about bigger, better, more effective government that will do more to meet public demands for "health, happiness, and security" and cost you less than any government ever did before.

There is a rhetoric of politics and a reality of politics. Boudreaux has captured the reality of politics in the above letter as well as anyone, and it is a reality that was described by philosophers such David Hume and Adam Smith; founding fathers like Madison; economic journalists like Bastiat and Hazlitt; and economists like Mises, Hayek, Friedman, Buchanan and Tullock.

This blog spot was actually founded in August 2005, we started out reporting on research and teaching in the field of Austrian economics. However, we all watched at the end of that month as the devasatation of nature's fury (Katrina) was compounded by the folly of government policy (at the local, state and federal levels). We were in fact inspired by the events to start of research project with a team of scholars both internal and external to GMU and Mercatus to study the political economy of catastrophe in all its dimensions (economic/financial; political/legal; social/cultural). Products from this project have been published in journals such as Journal of Law and Economics, Southern Economic Journal, Independent Review, etc., policy papers have been published by Mercatus and also Cato, and articles have been published in newspapers from the Christian Science Monitor to the Wall Street Journal. Media mentions and appearances from this project have been numerous as well, including in The Economist, NPR and on local and natioanl TV, and public lectures and private meetings have been made to Congress and also with officials in Louisianna and Mississippi. A good summary of the basic message can be found here.

But as the Gulf Coast braces for another storm, are the lessons we have learned about local knowledge --- or to put it another way, how private soulutions provide the answer to public disasters --- going to be taken into account if the worst happens? I think the realistic answer has to be a resounding NO, and not because we have intellectually failed in our message to learn from the experience of Katrina. I would argue instead the following: (1) cultural ideas about citizen and state change slowly, not just in the span of 3 years and we will not be able to realize social change until we change this culture; (2) the logic of public choice is very daunting to overcome even when the intellectual culture is in favor of individual responsibility and self-reliance, when the dominate cultural ideas are one of dependence on the state to deliver us from uncertainty and insecurity in the market economy and in life in general; (3) paternalism and public choice are bedfellows that continually advance the power of the state and atrophe the individual spirit. As James Buchanan writes in his essays "Afraid to Be Free" --- the problem today is not that the arguments for managerial socialism are widely accepted as they were between 1940-1980, nor is it really a problem of the overzealous "nanny-state" (which of course is a problem), but that citizens actually want to have the state parent them. We are, as Buchanan says, "afraid to be free."

Think about that in the context of the claim that we need strong state action to make social security secure, college education affordable, housing values to be stablized, etc. And think about that if and when we confront once again nature's fury by demanding public resources to prepare us, protect us, and rebuild us after the storm.

My friends at the Fraser Institute so appreciated my plug in the earlier post that they passed along an opportunity for students. Faculty readers might wish to pass this on to your students, or contact Fraser for more information. See contact info below.

****

Here is a great opportunity for students to flex their public policy muscles and win some free stuff!
The Fraser Institute is hosting a new Student Video Contest and students are eligible to win $10,000 in cash and electronics prizes.

The topic is: Incentives Matter - Fixing Health Care in Canada.

Students must submit a short concept paper by September 30th and then post their video on YouTube by October 31st. Friends and classmates can vote for the best video, and there are lots of prizes to be won. Canadian and foreign students are welcome to enter – the economic analysis is the same for everybody! Full contest details can be found at: http://www.fraserinstitute.org/studentsandlearning/forstudents/Video_Contest.htm

Student Video Contest promotional flyer and media advisory available upon request.
For more information, please contact:

Over the summer, I was asked to be the guest "professor" at the Fraser Institute's online "Ask the Professor" feature for students. What Fraser is trying to do is get some basic economic literacy out on the web, with a free market twist of course, and give interested students the opportunity to interact with the author. In June and July, I posted short (600-800 words) essays on "Prices and Profits" and "Competition and Knowledge." For August, the topic is "Inflation." The interaction takes the form of an online chat with the author for an hour each month. This month's chat is on Friday at 2pm EDT. Those chats have been fun and challenging and are a great opportunity to engage in some "taking economics to the streets" type interaction.

The fine folks at Fraser have asked me to continue on as "The Professor" (pun intended, for those who know my taste in music) throughout the fall. So if you're an undergraduate or a non-economist looking to brush up on your basic economics, check back there each month for a new essay and chat. And remember to support Canadian public policy organizations like Fraser because the best of life's most important things come from Canada - rock and roll, beer, donuts, and hockey.

Dan Griswold of Cato usefully summarizes some 2007 data released today by the Census Bureau. Bottom line: the middle class is shrinking because it's getting richer, median household income is up, the poverty rate is the same as 2006 and lower than 1997, and the number of Americans without health insurance is down slightly from 2006 and lower than it was a decade ago. The forces of innovation are outdueling the forces of stupidity as we become better off even while government grows.

Could things be even better? Absolutely and they would be with less government. But is the middle class drowning and is poverty expanding? Absolutely not. And we need to constantly make this point not because the current size of government is fine, but because to the extent people believe the economy or the middle class are in trouble, they are likely to demand more government as a solution. Call it playing defense if you wish, but without doing so, the awful world that people wrongly imagine is already here would indeed come to pass.

Returning to the airport after a Liberty Fund conference a rather famous legal philosopher who was in the front seat of the van turned around to the rest of us passengers and said "I take it that all of you knew this character Gordon." Several of us were economists and political economists so of course the answer was yes. Tullock was typically intellectually engaged throughout the conference and challenged many a received wisdom. He was aggressive, but brilliant. I think that sums up his entire career.

I have been blessed in my academic career -- both as a student and as a colleague to have been exposed to Gordon Tullock. It will be impossible to replace Gordon Tullock, but I hope our department will honor his career by maintaining that fine balance between intellectual irreverence to established opinion and refined and sophisticated argumentation in economics, politics
and the social sciences.

Many of you might not remember this, but during the confirmation hearings for Clarence Thomas, Joe Biden actually attacked Judge Thomas for being a follower of the 'natural law' theories of Steve Macedo and Richard Epstein. The Senator from Delaware actually held up a copy of Epstein's Takings and shook it at Thomas yelling "Do you believe this book?" or something to that effect. I tried to find a YouTube clip of this but was unsuccessful. Biden argued that 'natural law' doctrine was an obscure and out of the mainstream philosophy that had no place in constitutional law. What bothered him the most was the idea that the law had some meaning outside the context of what the government says, and in particular that natural law would give priority to individual rights and property rights over governmental regulations. But Biden wasn't prepared to have a serious conversation about political and legal philosophy, instead he waved a book in disgust at a Supreme Court nominee. And remember he was the Chair of the committee at the time. He doesn't understand concepts like 'natural law' or even 'the rule of law'. He does understand state power, government regulation, and legal activism.

So unless the American people are far more idiotic than I think, the election just got a lot closer. The Democratics have an amazing capacity to snatch defeat from the jaws of victory and Obama choosing Joe Biden to be a running mate for "hope and change" when he is the poster child for political divisiveness and smug (yet ignorant) arrogance in political/legal discourse is another case in point. And just think Howard Dean's "yeah" sent people over the edge, wait till they get a good look at the various comments made over the years from Biden and his striking displays of 'intelligence' and 'decorum'.

There simply is no hope for hope and change in 2008. That is sad because we sure could use some hope and change concerning the policies in Iraq and overseas in general, and certainly back home with regard to the economy and the financial system. Why hasn't any viable candidate appeared that believed in the policies of peace and prosperity, and instead all we get is more of the same policies that promote war, enhanced state power, and the strangling of the creative and productive freedom of the market economy?

Jerry O'Driscoll has an op-ed in this morning's WSJ arguing that we may be at a sort of tipping point with respect to the Fed's ability to catch people off-guard with inflation. It's been able to do so in the last few times because, like the poker player who only bluffs once in a blue moon, it had a reputation as an inflation fighter, which dampened expectations. But having played the "fool me once" game a few times, it might be losing that reputation, leading to a more permanent shift in expectations ("he's now abluffer"). Jerry writes:

In his famous treatise, "The Wealth of Nations," Adam Smith noted there
had never been a "single instance" of sovereign debts having been
repaid once "accumulated to a certain degree." We may have reached
Smith's threshold...

We are at a Smithian moment, in which the temptation
for the Fed to spend its last dime of credibility may prove
irresistible. Investors are already being taxed by inflation and can
rationally expect that tax rate (the inflation rate) to be raised going
forward. Wages are not keeping up. Main Street is being taxed to fund
Wall Street excess. Anyone who works, saves and invests is exposed to
confiscation of his capital and earnings through inflation.

If the Fed maintained its independence of action and
said no to the inflationary finance of Congress's profligacy, we
wouldn't have reached this point. But the Fed has forsaken that
independence amid an absence of leadership.

Perhaps, as rarely happens, Adam Smith will be proven wrong. Let us hope so, because hope appears to be all we have.